Tuesday, October 19, 2010

Lost Leaders (plus making enemies on twitter)


I was drafting much of this post over the weekend, but couldn't hit the publish-button in the end. The main reason for my indecision - I’ve knowingly become an especially mean-old ass behind the scenes (in general, but especially in my trading life), but I was having a difficult time being a complete jerk in public.

Then I read the Nick Denton article Search and Destroy in the New Yorker and I wondered - why should I be so god-damned nice?

I've been conveying pretty much everything I do here the last couple of years (I didn't realize I'd live this long), so I may as well stop holding back. I'm just trying to make a living after all. Scroll to the bottom here for the dirt.

First, enthusiasm (sentiment/animal spirits) had risen measurably lately, coincident to everything no longer working in equities (whereas just a couple weeks ago, everything had been working, throughout September, and yet sentiment was considerably more cautious at the same time).

The general environment remains favorable, sure, maybe, but there have been some dramatic blow-ups lately and themes blowing-up do matter (the site of blood slows down investor appetite).

The education stocks (not a leadership group) were destroyed last week, while the previous week saw the cloud-space tech leaders lance dramatically, on tremendous volume, and fail to recover by any significant degree (normally, a first, sharp-slice lower in a leadership stock or group is a buying opportunity only, certainly in the short-term; the wall of worry is built on such bullish slices, followed by a gradual return to higher prices; but the cloud space did not return to higher prices). Microsoft news today that they will put their Office software on the cloud may be the best reason for this, but that is a guess only (it may be the market is telling us something instead, that leadership is waning). But whatever is going on, I still insist EBIX blowing up was not worthy of creating as much damage as it did.

If I sneeze on the Pope and he dies soon after - there were more negatives to his health than my little germs. EBIX did not kill the cloud space. The cloud space was apparently sitting on a pin prick.

Today, for example, cloud stalwart VMW sold-off, managing lower-lows from the day EBIX collapsed, even though posting strong earnings and guidance last night. The negative market helped today, but lower lows on good news is not going to come out positive when you call your boss with the bottom-line news.

If you go back a little more than a month (few will recall, I suspect, since so many of the Twitterscente have more recently been piling into similar names which are/were rallying late in this cycle), the US listed stocks of Chinese growth companies began a new trend of blowing-up, coincident to indications of ill-accounting, shuffling auditors, resigning CFOs, etc. In other words, the underlying fundamentals of these Chinese companies listed only in the US were not very-well reflected in the information at our disposal.

Imagine that.

Since I wrote on this young phenomenon September 9th, a few more have blown up and a fabulously interesting article + ensuing drama has surfaced with another, UTA. This trend is likely to grow, in my estimation, and the throngs of Twitterbugs piling into RINO, CHBT and the junkier solar names (LDK, SOLF, CSIQ, etc.), are scooping up nickles in front of a proverbial steam roller. These names will rally 10% on a good day and they will halve your balls when stories of fraud surface.

I featured a fundamental look at RINO's technicals yesterday, one of the Chinese companies listed only in the US, which had become a favorite long recently with traders posting to Twitter. There have been no stories suggesting fraud with RINO and this will not be one of them. But given the accumulation of fraudulent stories surfacing in similar names, I think the reward for Russian Roulette needs to be higher. I'm avoiding anything Chinese which is listed in the US-only now, especially if it is not making higher highs.

Ok, let's get to the ugly...

I've nothing against Twitter. I'm quite big on the application, actually, especially as it relates to the stock market. It's just that I'm becoming a bigger fan of Twitter.

At the risk of coming off as a scumbag, I'll admit (far down on the page) the inverse genius is easier found these days on Twitter than any source I know right now (except for Scott, perhaps). And I love the inverse genius. I'm accumulating a mostly secret anti-follow list, whereby certain inverse superstars keep me in the loop - of what not to do, when not to do it, what I should do the opposite of, etc., etc. If you're on this list, it's no guarantee I'm fading you, since most the list is informational, or peer-leaders, or something banal like a reserve bank of Philadelphia (there you see, I'm not actually fading Philadelphia).

About a third of this list though are followed for pure contrary reasons. A couple of these are highly coveted. Twitter names I follow on my regular Centrifugal account are respected-only, for one reason or another. I might fade a trader here from time to time as well (I fade myself, so anyone is eligible), but ultimately it's because I respect your moves, insights, etc. and am interested in these in real time (such a nice guy, see?).

If themes in the market are going to blow up, then accounts are going to blow up. I've blown up and I know what it looks like. Now though, I am stepping over the dead bodies of my trading past, trying to get ahead on other trader's lessons. It's not a reflection on intelligence or anything other than aligning yourself to a blow-up, for whatever reason. We're all winners - we're all losers - but some of us at certain times are more aligned with the former.

I'm going to take the other side.

Follow Centrifugal to fade trades in real time ...(hey, if you believe in Karma than I can most certainly make you money tomorrow;)

New equity blow-ups on earnings tonight as I in fact hit the publish-button: CREE, ISRG and JNPR.

Beast out!

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